Insolvency rates climb as fragile economy bites

The number of businesses falling into administration climbed by close to a third last quarter, highlighting fragility within the national economy.

ASIC’s quarterly insolvency figures for the June 2017 quarter showed a 28 per cent spike in the number of businesses entering external administration – reaching 2,198, compared to 1,717 in the previous quarter.

“It’s important for business decision makers to stay up-to-date on insolvencies and at-risk sectors so they can make smarter decisions when it comes to extending trade credit to certain organisations,” said Mary Ibrahim, head of client services at credit insurer and debt collection firm Atradius.

“This is a key part of due diligence. Companies can also protect their interests by taking out trade credit insurance, which is an affordable and reliable way to protect the organisation in the event a customer fails to pay.”

The construction industry appears to be in for a rocky ride in the short term, taking the undesirable title of industry with the highest number of insolvencies in Australia at 403. This is despite a massive property construction boom on the east coast which is only now reaching its peak.

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According to Atradius, construction made up half of all credit insurance claims paid out last year.

Coming in second for insolvencies is the accommodation and food sector at 227 in the quarter, although this is well down on the 316 recorded in the same period last year.

“For some time now we have seen the construction and food and accommodation sectors’ insolvency rate increasing. For agriculture and food, this may in part be due to increased competition and changing consumer spending habits but for construction it is an ongoing trend,” Ms Ibrahim said.

High-profile retail collapses have contributed to the 155 insolvencies in that industry.

The volume of insolvencies increased in all states, led unsurprisingly by the sluggish WA economy, which saw a massive 63.5 per cent increase, while Victoria recorded a 50.6 per cent increase.

NSW as the country’s most populous state saw a 14.6 per cent rise, and Queensland a more moderate 7.8 per cent increase.